Faster Payments: Faster Than What?

Jul 18, 2016 | Meghan Elison

The difference between ‘faster’ and ‘real-time’ can be measured in dollars and cents. Image: Shutterstock

According to the July issue of the Faster Payments Tracker from NACHA and Pymnts.com, the time between now and September 23rd are going to be “the eye of the ACH storm.” That date is significant; it’s the day that ACH credit payments will begin same-day service. Same-day debits will follow soon after. This represents a huge step toward faster payments in the U.S., a necessity whose time has long since come.

However, this provides us with an opportunity to ask a very pertinent question: what do we mean when we say “faster” payments?

Same-day ACH takes a system that typically settles within three days and pushes it closer to the speed of all other digital systems. But same-day settlement is not real-time settlement. It’s merely a stop along the way.

In an interview with PaymentEye, Tom Hay, Head of Payments at Icon Solutions, talks about the confusion surrounding the terms different organizations and governments use to describe their efforts at updating the world’s antiquated and fragmented payments systems. He specifically engages with the difference between three terms: faster, real-time, and immediate. Although these terms are often used interchangeably, they mean very different things.

Faster means just that: anything that improves on the current processing time of 3-5 days for payments is technically faster than what we have now. This term is typically applied to same-day systems, such as the upcoming changes to ACH or Swift’s Global Payments Innovation Initiative (GPII).

Real-time and immediate refer to payments that take place in real time; connecting people or corporates anywhere in the world as simply as if they passed cash from hand to hand.

All payments innovation contributes to the eventual reality of the Internet of Value. In some places, real-time payments will grow out of same-day payments. Systems and processes can use the intermediate step to catch up and get ready for the coming exponential increase in economic actors promised by the incipient Internet of Things.

However, same-day is not a necessary step in all cases. Real-time settlement is not only possible, it’s already happening. Santander U.K. is using Ripple for cross-border payments from GBP to EUR and USD. Canadian bank ATB recently sent a transfer of CAD to Reisebank in Germany live on camera, so that everyone could see the funds clear and settle eight seconds later.